I just went through the same thing you are going through. Except my wife was never really into cycling and didn't know if she'd like. She was strongly against spending a lot on a bike for her until she got more comfortable with cycling. I was talked out of going the extremely cheap route by this forum -- I found a LBS that was selling Roadmasters for about $100.
I ended up getting a left over IRon horse for my wife for about 170 from the LBS I got my trek from. All I can say is I second every opinion that says stay away from xmarts! I had a great experience at my LBS. They set it up and talked her thtough the bike and, since they offer lifetime tune-ups I know they'll be there and stand behind it.
Visit as many LBS as you can. Be honest with them about your needs and budget, and you'll find something appropriate.